HP reported its quarter, and while the company’s revenue-line beat of estimates buoyed its stock after hours, we think that the results were at least as troubling as they were gratifying for HP, or at least they should have been.
Whitman’s decision not to spin out the PC business was a major risk factor for HP because the company’s position in that market was clearly going to be impacted by the earlier decision to leave it. To make matters worse, HP’s tablet strategy (always problematic given WebOS’ limited opportunity to gain versus iOS and Android) was contaminated by its decision to exit that market, presumably also reversed. Then there’s the hard drive supply problem, which could increase the unit cost of PCs and drive even more users to tablets in the near term, creating a market shift HP is especially vulnerable to given the points I just made.
The big problem for HP, though, may be its failure to bring its service and network strategies to fruition. Logically, HP needs to create a vision of data center evolution that’s based on a strong symbiosis between computing, software, and networking simply because they have all those elements in house. Services could be the glue that binds these elements into a cohesive strategy. Absent a vision of data center unity, though, services have nothing on which to build and HP cedes its largest benefit. In our just-completed fall strategy surveys, HP continued to lose influence in the data center, where it clearly needed to gain it (Cisco gained there, which is reason enough for HP to worry).
There are even a few rumors now that HP may be looking to pull an IBM and leave the networking business instead of the PC business, creating a formal partnership with Cisco that could even involve the “sale” of its network assets/customers. For HP, this sort of thing would be either a total disaster or nearly so; Cisco is perhaps the only serious rival to HP and IBM for hardware dominance of the new network-integrated data center and Cisco would be empowered by such a move on HP’s part.
